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Facing a new frontier

The major economic powers confront change

Facing a new frontier
MARY NEMETHJuly161990

Facing a new frontier

The major economic powers confront change

MARY NEMETHJuly161990

Facing a new frontier

THE UNITED STATES

The major economic powers confront change

For months, Texas broncobusters have been buffing their cowboy boots and steer-roping stars have been dusting off their 10-gallon hats. As the descendants of America’s frontier days prepared to kick off the 16th annual summit of seven major industrial nations in Houston this week with a rodeo and country-music concert, their Old West theme could not be more appropriate. The rival Communist world has collapsed since the previous economic summit last July, and the leaders of the United States, France, Britain, Italy, West Germany, Japan and Canada faced the challenges of a new frontier in the changing global order. “This is an exceptional year,” declared Derek Burney, Canada’s ambassador to Washington. Not only has the “unthinkable” actually happened, he added, “but now we have got to think about it.”

Unlike past summits, where most of the issues were settled weeks in advance, large parts of this year’s three-day meeting promised to be spontaneous. Before the leaders gathered at Houston’s Rice University, they were sharply divided over significant issues: among them, a German proposal for a massive aid package to the Soviet Union and a global trade agreement that threatens to collapse over the question of agricultural subsidies. As a result, other challenges, including public pressure for international action against pollution, may be sidelined.

The collapse of the Soviet empire has called into question the assumptions, including military-based Cold War economies, that have guided non-Communist leaders since the first economic summit near Paris in 1975. The simultaneous emergence of a united Germany in a more closely knit European Common Market has encouraged warnings that the world may break into regional trading blocs— Europe led by Germany, Asia led by Japan and the Americas led by the United States. American economists warn that a debt-saddled United States could find itself in third place in a new international pecking order.

Already, the Europeans seemed poised to take the lead in securing an economic foothold iri the Soviet Union and its former satellites. In advance of the Houston meeting, West German Chancellor Helmut Kohl, with French and Italian support, pushed his proposal for a $ 17billion Soviet aid package, arguing that the West must throw a lifeline to beleaguered Soviet President Mikhail Gorbachev. But President George Bush had said that any direct aid to Moscow, before it undertakes fundamental economic reform, would be wasted. Some allies

noted that Bush is under intense domestic pressures to restrain spending in the face of budget deficits that have already prompted him to renege on a 1988 campaign promise not to raise taxes.

Prime Minister Brian Mulroney was expect-

ed to seek a conciliator’s role—urging that economic assistance be extended to Moscow, but only after the West can ascertain exactly what kind of help would be most useful. Aid to the former Soviet satellites is less controversial. Last week in Brussels, a wider group of 24 industrial nations that had already directed aid to Poland and Hungary agreed to extend assistance to Czechoslovakia, Bulgaria, Yugoslavia and East Germany. (They excluded Romania for human-rights abuses.) Canada committed $60 million to the plan.

But in global terms, the biggest challenge in Houston is how to break through a deadlock hampering efforts to promote freer trade. At stake is the so-called Uruguay Round of negotiations to reform the 97-nation General Agreement on Tariffs and Trade (GATT). Those talks, launched in Uruguay in 1986, are scheduled to wind up by the end of this year. A major disagreement centres on Washington’s proposal to eliminate agricultural subsidies, which cost taxpayers around the world an estimated $285 billion annually. The European Communi-

ty wants to retain subsidies that keep its highcost farmers in business. For Canadian farmers, who say that subsidies have already suppressed world grain prices and forced many of them into bankruptcy, the failure of the Uruguay Round could spell many more years of hardship. “Canada,” said Burney, “has more stake in a successful round than the big boys.” Although the environment dominated last year’s Paris summit, world events have demoted it to third place on this year’s agenda. Canadian officials say that they will press for strong action on global warming, a process that scientists say is caused largely by automobile and industrial pollution. But a coalition of international environmentalists that convened a parallel summit in Houston prepared a scorecard that rates each of the seven nations on

compliance with commitments made at the 1989 summit. Canada tied with Japan for fifth place—only Italy scored lower.

Not all the summit topics were breeding grounds for disagreement. Negotiators secured a consensus on attacking such problems as the international drug war. And Bush was expected to paper over the differences on Soviet aid by telling Kohl that he may proceed alone if he wishes.

Still, analysts say that future U.S. influence depended on Bush's ability to exercise leadership at a time when Bonn seemed poised to seize the initiative. “How Bush reacts will tell us a lot about the future of American foreign policy,” said Michael Mandelbaum, a senior fellow at the New York City-based Council on Foreign Relations. “This year after the Cold War is the key. And that process, that moment, begins at Houston.”

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